TaxTMI 
TaxTMI 
2018 (11) TMI 111
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....s of the case, for want of jurisdiction and various other reasons and hence the same kindly be deleted. 2. Rs. 20,22,110/-: The Id. CIT(A) erred in law as well as on the facts of the case in confirming the disallowance made by the AO of the interest paid on the borrowed capital used for business purposes and rightly claimed u/s 36(1)(iii) of the Act. The disallowance so made by the AO and confirmed by the Id. CIT(A), being contrary to the provisions of law and facts, kindly be deleted in full. 3. Rs. 5,74,585/-: The Id. CIT(A) erred in law as well as on the facts of the case in confirming the denial of the benefit of the set off of the unabsorbed business losses of Rs. 5,74,585/- carried forward from A.Y.2012-13. The unabsorbed business losses so not permitted to be set off, being contrary to the provisions of law and facts, the AO kindly be directed to allow the benefit of the set off as claimed. 4. The Id. AO further erred in law as well as on the facts of the case in charging interest u/s 234B of the Act. The appellant totally denies its liability of charging of any such interest. The interest so charged, being contrary to the provisions of law and fac....
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....r the setting up of business though it may be before/after the commencement of the business even then, is fully allowable as an expenditure incurred for the purpose of the business u/s 36(1)(iii) and/or 37(1). 2.2 In the present case, there are several indications, which go to show that the assessee had not only set up the business of real estate but even commenced such business as evidenced from the chronology of the following events (at a glance table is also enclosed with the WS): • The appellant purchased the agricultural land at Foysagar Road, Ajmer on 14.12.2011 & 30.01.2012 i.e. in A.Y. 2012-13 (Admitted by AO at page 2 PB 9). • The assessee started the process of getting the said land converted (from agriculture to residential) u/s 90A of Rajasthan Land Revenue Act, 1956 (PB 16). • Rs.2 Lakh were deposited towards security amount (_____) for said conversion u/s 90A of Rajasthan Land Revenue Act, 1956 on dated 15.02.2013 (PB 11 & 64). • Further deposit of Rs. 50,000/- made to the UIT towards the approval of the layout plan on dated 05.03.2013.(PB 64) • The site plan submit....
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....rd is the actual distribution or sale of the building. The first step in time lays foundation for second step and completion of second step lays the foundation for third activity. All three activities are essential for running a business and thus, expenditure at each entry point is an expense in relation to whole business. The assessee, therefore, rightly undertook the first step of real estate business by acquiring the subjected land (which was used as stock-in-trade and developed as per business planning), during the year under consideration and laid down the foundation of real estate business. 2.4 In the facts of the present case therefore, it cannot be disputed that the assessee had already set up its business in A.Y.2012-13 only by taking so many steps as narrated hereinabove. Notably, the lower authorities also have not raised any dispute on this aspect. 3.Distinction between setting up and commencement of business: The only objection of AO was that subjected expenditure was incurred prior to the commencement of business. But the settled law is that there is a difference between the setting up of business and commencement of business. An expenditure....
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....see's appeal holding that business of assessee was set up in A.Y. Held, decision of Tribunal was based on relevant tests that had been handed down judicially for purpose ascertaining as to when a business can be said to have been set-up-In case of Precision Electricals vs Commissioner Of Income-Tax (1989) 176 ITR 453 it was held that question as to when business of assessee had commenced is a question of fact & if Tribunal as, after appreciating entire material on record, found that business of assessee was set-up on a particular date, it would be a finding of fact from which no question of law can be said to arise-Attempt, therefore, should be to see as to whether Tribunal had taken note of appropriate circumstances & applied proper tests in arriving at conclusion which it did-Tribunal had observed that having regard to business of assessee, participation in tender represented commencement of one activity which would enable assessee to acquire land for development-If assessee was in a position to commence business that means business has been set-up-Acts of applying for participation in tender, borrowing of monies for interest, deposit of borrowed monies on same day as earnest mon....
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....to show that the work is in progress. It is the nature of the expenses that would determine the character in whatever manner it might be shown in the accounts of the assessee. In this case the question was at the second stage and as such the business shall be deemed to have been commenced. 'Business' in an adventure or undertaking to gain profit out of the transaction. Even if it is one transaction, still then it is an adventure and a business. If someone starts a business and then leaves it after one transaction, even then it would be a business. As such a sporadic action cannot be singled out to discard that it is not part of the business.-Edwards (H.M. Inspector of Taxes) vs. Bairstow & Harrison 36 Tax Cases 207 (HL) applied" 4.4 Also in CIT v/s Saurashtra Cement & Chemical Industries Ltd (1973) 91 ITR 0170 (Guj) (DPB 24-35), it was held that: "Business income-Commencement of business-Business is nothing more than a continuous course of activities-All activities which go to make up business need not be started simultaneously in order that business may commence-Business would commence when activity which is first in point of time and which must necessar....
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....ftware India (P) Ltd(2008) 218 CTR 0427 (Del), it was held that "Business expenditure-Allowability-Setting up or commencement of business -What is relevant for purposes of IT Act is setting up of business and not commencement of business-CIT(A) and Tribunal having given a finding of fact that assessee had set up its business on 15th Aug., 1995, the day on which it obtained license to distribute ESPN Channel services and was entitled to claim expenditure incurred on or after that date as revenue expenditure, no substantial question of law arose" 4.8 CIT vs. IBC Knowledge Park P. LTd. (2016) 136 DTR 65/287 ITR 261 (Kar) (DPB 51-55) The ratio so laid in the above cases squarely apply on the facts of the present case where the revenue has not disputed the fact of setting up of business but as a misconception of law, ignored the same and therefore, such expenditure are allowable. The AO [in remand report - CIT(A) page 7] has vaguely alleged that the notice of demand from ADA was raised on dated 18.06.2015 falling in A.Y.2016-17 hence, there was no commencement in this year but ignored the other steps which were admittedly taken by the assessee and supporting e....
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....at PB- 61) i.e. the first year when the land was purchased and some interest was paid, however, the interest so claimed was not disallowed therein. 7. Nature of transaction is material and not its description: 7.1 The repetitive allegation by the AO that the interest was claimed in the capital A/c and the land was shown as investment in its personal balance sheet is a misconception of facts and law which wrongly prevailed over him. 7.2.1 Firstly, the law is well settled that the accounting entries are not decisive of true character of the transaction as held in Kedarnath Jute Mfg. Co. Ltd. v/s CIT (1971) 82 ITR 363 (SC). Moreover, such presentation in balance sheet is also irrelevant in as much as a taxpayer is free to employ, for the purpose of his trade, his own method of keeping accounts as held in Investment Ltd. v/s CIT (1970) 77 ITR 533 (SC). Also, the entries made by an assessee in his books of account are not determinative. What is necessary to be considered is the nature of the transaction as held in Sutlej Cotton Mills Ltd.v/s CIT (1979) 116 ITR 1 (SC). 7.2.2 Secondly, with regard to the repeated allegation of the AO that such ....
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....After all the substance always prevail over the form, as aforesaid. 8.1 Interest on borrowed capital allowable even if utilized for capital asset: Alternatively and without prejudice to above contention, it is submitted that in this case, a business was already in existence, for the purpose of which borrowing were made and interest was paid and claimed u/s 36(1)(iii) and/or 37(1) of the Act. However, even assuming for a moment that the borrowings were utilized towards the investment in land and therefore, interest expenditure was i.r.t. a capital asset even then, so long as S.36(1)(iii) is concerned, it is fully allowable in as much as the said provision do not make any distinction between the nature of utilization of borrowed funds viz whether it is utilized towards the acquisition of the revenue asset or a capital asset. Hence, also the claimed interest was fully allowable. There are various decision to support this contention. 8.2.1 Kindly refer CIT v/s Rajeeva Lochan Kanoria (1994) 121 CTR 0342 (Kol) (DPB 42-48), wherein it was held that "the enquiry that is to be made is whether the payment of interest was in respect of the capital borrowed for the purpose of....
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....t year when the land was purchased and interest of Rs. 7,49,158/- was similarly claimed yet however, the interest so claimed was not disallowed therein. There being no change in the facts and circumstances there was no reason yet to make a disallowance therein. Kindly refer Godrej Boyce Mfg. Co. v/s DCIT (2017) 151 DTR 89 (SC), wherein it was held that: "38. x x x x x x While it is true that the principle of res judicata would not apply to assessment proceedings under the Act, the need for consistency and certainty and existence of strong and compelling reasons for a departure from a settled position has to be spelt out which conspicuously is absent in the present case. In this regard we may remind ourselves of what has been observed by this Court in Radhasoami Satsang v. CIT [1992] 193 ITR 321/60 Taxman 248 (SC). "We are aware of the fact that strictly speaking res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have al....
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....tal for the reason that this was the interest paid by the assessee before commencement of the business and it should be capitalized and the borrowed money was not utilized for business purposes. From the facts on record, we find that the assessee has purchased agricultural land on 14/12/2011 and 30/01/2012 during the period relevant to assessment year 2012-13. The assessee has also started the process of getting the land converted from agriculture to residential by applying for conversion of Section 90A of Rajasthan Land Revenue Act, 1956. The assessee has also produced evidence of payment of Rs. 2.00 lacs towards the security for conversion U/s 90A of Rajasthan Land Revenue Act, 1956 on 15/2/2013. The assessee has further deposited Rs. 50,000/- to the UIT towards the approval layout plan on 05/3/2013. The assessee has also submitted site plan approved by the Ajmer Development Authority on 15/3/2013. Due to some dispute arose in respect of land, the construction was delayed. Thus, the acts of the assessee shows that he was pursuing the business of real estate during the relevant period. The land was purchased for the purpose of doing the business of real estate by developing the....